Trump tariffs are ‘bid to force China’s hand because it failed to convince US it was sincere about opening up economy’

Senior official says White House slapped US$60bn tariffs on imports because Beijing had failed to live up to its commitments  

PUBLISHED : Friday, 23 March, 2018, 8:48pm
UPDATED : Saturday, 24 March, 2018, 9:28am

The United States wants to force Beijing to change its economic and trade policies because the White House is not convinced by China’s recent promise to open up, a senior US official said.

The proposed tariffs by Donald Trump on US$60 billion worth of Chinese products were also designed to counter the threat of China emerging as a major technology competitor, the official said.

There is “a clear and long-standing pattern of behaviour” [by China] that contributed to the current imbalance and action was long-overdue, the official added. 

The official also said China had failed to fulfil a 100-day plan agreed by the two countries last year to further open China’s financial services and agriculture markets.

“We thought that would be low-hanging fruit. We thought that would be easy for them to achieve … but they missed half of that list,” said the official, citing slow progress on electronic payment systems and biotech approvals.

China to levy tariffs on US agricultural and steel products after US$60 billion Trump penalties

Trump signed off on the measures, including hefty tariffs on Chinese goods, targeting what he called Beijing’s economic aggression following a six-month-long investigation under Section 301 of the Trade Act of 1974.

Concerns have been mounting in the US over Chinese state influence and bias against foreign investors in China’s hi-tech industries.

US officials argue that the use of state subsidies, licensing and data localisation rules, as well as mandatory technology transfers in exchange for market access have put American companies at a disadvantage.

Hours after Trump’s announcement, China struck back with plans to impose tariffs on US$3 billion of US exports ranging from agricultural to steel products. 

The Chinese Ministry of Commerce said it was ready to respond further if the US measures were implemented, but some observers said China would be cautious as foreign trade is more important to the Chinese economy than it is for America’s.

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The prospect of a trade war between Beijing and Washington took its toll on global stock markets on Friday. Hong Kong’s benchmark Hang Seng Index dropped below 30,000 points in the morning before scaling back some of the losses to close on Friday at 30,309.29, down 2.45 per cent. The mainland benchmark Shanghai Composite Index lost 3.39 per cent.

Japan’s Nikkei Index fell 4.66 per cent. 

In the US, the Nasdaq Composite ended Thursday down 2.4 per cent and the Dow Jones Industrial Average dropped 2.93 per cent.

Beijing’s Made in China 2025 plan to increase the market share of home-grown businesses has worried foreign companies. 

It gives priority to 10 hi-tech industries, including new energy vehicles, aerospace and aviation equipment, maritime engineering equipment, robotics and cloud computing

But the plan to do so through strong government support has concerned other countries. 

The growing appetite of Chinese companies for foreign technology assets has also triggered concerns about national security in the US and Europe.

China warns it ‘will fight to the end‘ in trade war after US$60b tariffs

The American official said the Made in China plan would be “hugely problematic” if the Chinese government was going to subsidise hi-tech products and it would be no surprise if the US administration put those on the tariff list. 

The official also said the US was working to get support from its allies to act jointly over “unfair” behaviour by China.

“We are not interested in dialogue. We are only interested in actions,” said the official. “The point here is the change of behaviour”. 

US Trade Representative Robert Lighthizer said in a statement that the US was acting to confront China over its state-led, market-distorting forced technology transfers, intellectual property practices and cyber intrusions on US commercial networks.

“The goal is to address unfair Chinese economic practices and create a level playing field that will give all Americans a better chance to succeed,” the statement said.

The US said it would release details of the products affected within 15 days.

Read China’s furious response to America’s US$60b tariffs in full

China plans to levy 15 per cent tariffs on 120 types of US products, including fruit, wine and steel pipes, worth US$977 million. It also plans to impose 25 per cent tariffs on another eight categories of products worth US$2 billion, including pork and recycled aluminium, according to the Commerce Ministry.

Analysts said Beijing’s reaction had been moderate so far, although it warned that it would not be shy in fighting back in a trade war.

“China’s countermeasures should be based on specific analysis, industry by industry, as Chinese enterprises which are deeply involved in the global industrial chain are likely to be hurt by the countermeasures as well,” said Jason Sun, a Beijing-based partner with Dentons law firm.

“The Section 301 investigation is not only a challenge to China, but also an opportunity to improve our IP protection policy and practice. 

“China may take this chance to review and refine the current IP protection policy design. Innovation not only needs financial support, but also requires strong intellectual property protection”, he said.

Arthur Kroeber, research head and co-founder of Gavekal Dragonomics, said China surely has “an equally specific, but longer”, list of targets ready to go when Washington finally unveils its Section 301 tariff list.

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“The strength of this response was carefully calibrated to send a clear message that Beijing will stand up to the US, but will not try to escalate the spat into a confrontation that could seriously threaten the global trading system,” Kroeber said.

Sun Zhe, adjunct senior research scholar and co-director of the China Initiative at Columbia University, said China and the US had had three major trade confrontations over textile in the 1980s, intellectual property in the 1990s and exchange rates in 2005.

“Almost every time China had made a lot of compromises while the US made small compromises. The actions taken by China now may be a protest, but the measures will be restricted. And at the end, China has to make concessions, such as reforming the state-owned enterprises.”

Additional reporting by Frank Tang